Should a new home loan pre-approval be made before offering less than expected?

Question

If a buyer has a home loan pre-approval for an unspecified property, which specifies an expected amount of loan, down-payment, and price, what happens if they make an offer on a less expensive house (or get accepted on a lower bid than they were pre-approved for)?

Do the terms change if the loan amount will be significantly less?

Would there ever be an advantage to wait for a new pre-approval with the actual price and loan amounts before making an offer?

It seems like there would be if the down payment is going up and crosses a threshold that would affect the loan rate. Though is the rate always going to be the same if the down payment was going to be at least 20% already?

It also seems like the monthly payments would be different if the loan amount is different - does that require a new pre-approval before making an offer?

Answer 1

The preapproval is the bank stating that they will loan you up to A with a down-payment of B for Y years at R rate. If you don't ned all the money that is great they will still give you the loan. You can keep the down-payment thew some amount of money or the same percentage of the purchase price whichever you want.

For example:

• Preapproval of $200,000 and a down-payment of $50,000 (20%) allows you to buy a house for $250,000.

• But you find one for $240,000, you can either:

  1. get a loan for $190,000 with a down-payment of $50,000.
  2. or get a loan for $192,000 and a down-payment of $48,000.

  Neither of these needs a new pre-approval. In both cases your monthly payment will be lower than the original loan was expected to be.

If you want to change to $200K for the loan and $40K for the down payment. or in other words decrease the percentage of down-payment; you might run into an issue that the bank doesn't think you have enough of your own money in the deal. Or you may now require PMI where you didn't previously. In this case they will need to re-approve you.

Now if the price goes up the bank could require more money down, or may need to re-evaluate the loan.